Topping-Up Clause

DEFINITION of 'Topping-Up Clause'

A condition implemented in a back-to-back or two-currency loan. A topping-up clause is designed to protect lenders from foreign-currency devaluations. It requires borrowers to make additional currency payments to lenders to cover any devaluation in a currency's value.

BREAKING DOWN 'Topping-Up Clause'

Topping-up clauses have some limitations on the kind of risk protection and rewards that they can provide for lenders. Some lenders have no use for the additional currency payments and may also be required to declare the additional payments as income, resulting in increased taxes. Banks now usually assume the risk in these transactions for a fee.